Innovations in Housing Financing and Superannuation Strategies

Enhancing accessibility to housing through innovative superannuation strategies like facilitating housing contributions, creating new savings buckets, and supporting property purchases with the First Home Savers Fund. Proposed transitions aim to optimize investment earnings, manage funds efficiently, and align with new housing legislation. These initiatives focus on improving retirement income and housing attainability for members.

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• Housing financing
• Superannuation strategies
• First Home Savers Fund
• Retirement income
• Property purchases

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Uploaded on Apr 02, 2024 | 0 Views

Presentation Transcript

1. Super and a house Making housing attainable Department of Personnel Management Paul Sayer, CEO Oct 2023

2. Facilitating housing in PNG Superannuation Employee Contributions Voluntary Contributions Employer Contribution 8.4% ? 6% The primary objective of Superannuation is to create wealth for members to enjoy a reasonable standard of living after retirement. 2 April 2024

3. Facilitating housing in PNG Superannuation Employee Contributions Voluntary Contributions Employer Contribution Housing Advance dips into retirement savings to attempt to making housing more attainable. 8.4% ? 6% The primary objective of Superannuation is to create wealth for members to enjoy a reasonable standard of living after retirement. 2 April 2024

4. Facilitating housing for PNG New Legislation Superannuation Employee Contributions Voluntary Contributions Employer Contribution Housing Contribution Medical Insurance Contributions Death and Permanent Disability Insurance Contributions 8.4% ? 6% The primary objective of Superannuation is to create wealth for members to enjoy a reasonable standard of living after retirement. Create new buckets to enable workers to save for the purpose of housing and ancillary benefits in addition to super. 2 April 2024 4

5. First Home Savers Fund FHSS Employer Contribution Property Investment Income Investment Income Fixed Interest Rental Income State Fixed Interest Sale of Developed Properties Short Term TB Bills Long Term GIS The primary objective of FHSS is to Support Property Purchase and Develop Property for residential uses State Securities for Fixed Interest Support and Liquidity with concessional taxation treatment. 2 April 2024 5

6. Facilitating housing for PNG Ideal investments would be Short Term Government Bills and Bonds and we would push for lower tax on investment earnings on these compared to Super. This could lower Government borrowings expenses. Administration may be easier to be managed by Super Funds as a separate Account and allows the management of transition to rules from existing Housing Advance Rules Transition ultimately would stop any new funds from leaving Super for a house i.e. What you have available now remains and new funds come from the First Housing Savings Scheme. 2 April 2024 Commercial in Confidence 6

7. Facilitating housing for PNG Transition to funding the various buckets over a defined period of time e.g. five years A portion of future Salary Increases are diverted to the buckets until such time as the set level is obtained This allows some salary increases each year and funding say for the Housing Bucket Include the investment income earned on the Bucket to be used as part of the deposit Potential for additional Employee After tax to be redirected here. First House Savings Bucket Funds not needed to be repaid like they are from the Housing Advance from the Super fund. 2 April 2024 Commercial in Confidence 7

8. Facilitating housing for PNG Seek concessional treatment of the Bucket Investment Income Taxation The investment needs to be in short term investments so slightly different to normal super funds as they can be drawn at quick notice Bucket only used for Housing if not used then can be paid out to the individual like an Employer Additional Account in Superannuation and taxed the same rates as Employer Account is when employment ceases (generally concessional based on service) Suggested Government has made savings on some components such as leave entitlements and will have lower costs based on lower salary bill so can offset by granting tax benefits on the bucket 2 April 2024 Commercial in Confidence 8

9. Transition Arrangements Year Potential Salary Increase Actual Pay Rise First Home Scheme First Home Scheme Total Cumulative Amount 2% Accumulated Deposit (+i) 1 4% 2% 2% 2% 2 4% 2% 2% 4% 6% 3 4% 2% 2% 6% 12% 4 4% 2% 2% 8% 20% 5 4% 2% 2% 10% 30% 6 4% 4% 0% 10% 40% 7 4% 4% 0% 10% 50% 2 April 2024 Commercial in Confidence 9

10. After 5 years new Starters to work force First Home First Home Scheme Total Cumulative Amount First Home Scheme Accumulated Deposit (+i) Potential Pay Rise Actual Pay Rise Year 1 4% 4% 0% 10% 10% 2 4% 4% 0% 10% 20% 3 4% 4% 0% 10% 30% 4 4% 4% 0% 10% 40% 5 4% 4% 0% 10% 50% 2 April 2024 Commercial in Confidence 10

11. Loan Term Maximum Purchase Price for House 5.652 5.217 4.647 3.904 2.931 1.661 Repayment Percent of Salary Repayment Percent of Salary Maximum Purchase Price for House Loan term Interest Rate Loan Multiple times Salary Deposit Loan term Interest Rate Loan Multiple times Salary Deposit 30 25 20 15 10 5 0 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% 5.50% 35% 35% 35% 35% 35% 35% 35% 5.09 4.69 4.18 3.51 2.64 1.49 0.00 0.565 0.521 0.464 0.390 0.293 0.166 30 25 20 15 10 5 0 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 35% 35% 35% 35% 35% 35% 35% 5.70 5.19 4.55 3.76 2.77 1.54 0.00 0.6335 0.5767 0.5059 0.4176 0.3077 0.1707 0.0000 6.335 5.767 5.059 4.176 3.077 1.707 0 - 2 April 2024 Commercial in Confidence 11

12. Loan Term Loan Multiple times Salary Maximum Purchase Price for House Loan Multiple times Salary Repayment Percent of Salary Repayment Percent of Salary Loan term Interest Rate Interest Rate Deposit Loan term Deposit 30 5.50% 30% 4.36 0.484 4.845 30 4.50% 30% 4.89 0.543 25 5.50% 30% 4.02 0.447 4.471 25 4.50% 30% 4.45 0.494 20 5.50% 30% 3.59 0.398 3.983 20 4.50% 30% 3.90 0.434 15 5.50% 30% 3.01 0.335 3.346 15 4.50% 30% 3.22 0.358 10 5.50% 30% 2.26 0.251 2.513 10 4.50% 30% 2.37 0.264 5 5.50% 30% 1.28 0.142 1.423 5 4.50% 30% 1.32 0.146 0 5.50% 30% 0.00 - - 0 4.50% 30% 0.00 0.000 2 April 2024 Commercial in Confidence 12

13. Purchase Land to build Price of Purchasing is determined from 2 components Developing the LAND Building a HOUSE Cost to purchase Land from owners Costs to Service: Power Electricity Roads Water Sewage Materials + Labour + Taxes 2 April 2024 Commercial in Confidence 13

14. Buying the HOUSE + LAND EQUITY / MONEY SAVED LOAN Savings Superannuation or other Savings Cost of Capital Credit Default Cost to Operate the Business Borrowing Costs Saving Share Holders 2 April 2024 Commercial in Confidence 14

15. Impact to an Individual for Borrowing Loan Amount is determined based on Taxable Salary. Repayments is maximum Percentage of Taxable Income, i.e. Salary + Taxable Allowance e.g. 30% maximum. Loan term is determined Years to a defined Age say 65: 35 year old = 30 years 40 year old = 25 years Younger can borrow longer than older Interest Rate Lower Interest Rates means more can be Borrowed. Maximum Loan Amount is limited to multiples of Equity, e.g. 4 time or 9 times. 2 April 2024 Commercial in Confidence 15

16. Advocacy areas TAX, POLICY and PARTNERSHIPS There is no simple way for the Fund to supply housing. 1. SOE ownership potential synergies or potential to lower cost of development infrastructure There are many ways we can service our members through continuing to advocate for reforms that will help them achieve housing. 2. Working with Treasury about Tax, Super reforms 3. Advocacy to reduce, remove GST on housing materials and lower income taxes The NSL team are committed to continue to work on Policy Advocacy for the benefit of members. 4. Super AND Housing not Super OR Housing 5. Potential Investment in Developers or support to others 2 April 2024 Commercial in Confidence 16

17. Advocacy areas - LANDS Having any Land gifted may be hard to obtain from the State. 1. Support for Customary Land conversion 2. Strata Title to allow multi story developments to occur more easily The concept of apartments in high rise with legal title to the owners is something that is not typically done in PNG. 3. Allowing Real Estate Investment Trust REITS so as to allow others to create and to allow recycling of Capital Does high density living be consider suitable considering the PNG s community based culture 4. Improvements in the Lands department about ownership and speed to generate Titles 5. Informal Settlements 2 April 2024 Commercial in Confidence 17

18. 9 Mile Legal work continues to secure all 4 blocks under NSL title Exploring how to proceed with development Need to determine viability based on site issues and strengths Project initiation has commenced to determine financial feasibility. 2 April 2024 Commercial in Confidence 18

19. What is required to make this happen Employer and Employees need to agree to the Salary redirection (Accord) Minor variation to Super Laws to allow Employer Additional Contributions (Salary Sacrifice) to be eligible for Housing Deposits Transition laws for withdrawal amounts to change over from Housing Advance to First Home Savings Scheme Taxation Investment Concessions to be agreed Salary Concessions to be agreed up from 15% to 18.4% (8.4% Super plus 10% for House) 2 April 2024 Commercial in Confidence 19

20. Thank You 2 April 2024 Commercial in Confidence 20